Download QUIZ 2: Macro – Winter 2002 - The University of Chicago Booth

QUIZ 4: Macro – Fall 2014
Name: ______________________
Section Registered:
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Tue a.m.
Campus
Tue p.m.
Gleacher
Wed a.m.
Exchange Student None
For the entire quiz, make the following assumptions. (1) All consumers are non-liquidity
constrained, non-ricardian PIH, (2) Prices are held fixed unless told otherwise, (3)
expected inflation does not affect money demand (MD), (4) the capital stock (K) is fixed, (5)
all exogenous variables (A, tax rates, government spending, Fed policy, etc.) are fixed unless
told otherwise, (7) we are considering a closed economy (NX=0), and (8) changes in N do
not independently affect investment demand. Finally, assume all changes to exogenous
are permanent and unexpected.
Note: For questions 1-3, you must circle ALL true answers. Multiple answers could
be true (or not). You should view the answers as a series of True/False questions.
Question 1 (1 points each – 3 points total)
Circle all true answers to the following statement. Assume that the income effect on labor
supply (NS) is the same size as the substitution effect on labor supply. An increase in the
required reserve ratio (m) will:
a. Shift both the LM curve to the right and the Aggregate Demand (AD) curve to the
right.
b. Shift the Long Run Aggregate Supply (LRAS) curve to the right.
c. Shift both the Money Demand (MD) and Money Supply (MS) curves to the right.
Question 2 (1 point each – 5 points total)
Circle all true answers to the following statement. Assume that the income effects on labor
supply (NS) are large relative to the substitution effects on labor supply. A fall in labor
income taxes (tn) will:
a. Shift the Labor Demand (ND) curve to the right and the IS curve to the right.
b. Shift the Aggregate Demand (AD) curve to the right and the Labor Supply (NS) curve
to the right.
c. Shift the Long Run Aggregate Supply (LRAS) curve to the right.
d. Shift both the Money Demand (MD) curve and the Money Supply (MS) curve to the
right.
e. Shift the LM curve to the right.
Question 3 (1 point each – 5 points total)
For this question, circle all the answers that are true. Also, use the IS-LM framework
developed in class to answer the questions (like we did in the middle of class last week).
Focus your analysis on the short run (such that nominal wages are fixed and the labor
market is allowed to be in disequilibrium). Again, assume prices are fixed (and all other
quiz assumptions hold).
a. An increase in the nominal money supply (M), will cause real interest rates (r) to fall
and will shift the IS curve to the right.
b. A fall in government spending (G) will cause the IS curve to shift to the left and
investment (I) to fall.
c. An increase in consumer confidence will cause real interest rates (r) to fall and the
Aggregate Demand (AD) curve to shift to the right.
d. An increase in business confidence will cause real interest rates (r) to rise causing the
effect on total investment (I) to be ambiguous.
e. An increase in TFP (A) will have no effect on either the Money Supply (Ms) or the
Money Demand (MD) curves.
Question 4 (4 points total - Graded on 0/4 scale)
Below, I have listed some approximate facts about the U.S. economy during the 2008-2009
recession. Here are the facts:
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The unemployment rate increased by 4.1 percentage points during 2008-2009.
Real GDP increased by 0 percent during that time period.
Nominal interest rates (1 year Treasury) fell by 2.1 percentage points during that time period.
The nominal money supply increased by 20.1 percent
The CPI inflation rate was 5.7 percent
Given the information above, what happened to the velocity of money during this time
period? Put your answer in the box below.
Question 5 (3 points total. No partial credit.)
The Planet Money article "The Birth of the Dollar Bill" spoke about the evolution of a single
currency within the United States. The article spoke about how one war was instrumental in
moving the U.S. towards a single U.S. backed currency (as opposed to the existence of
various local bank notes). According to the article, what war was that? Your answer should
only be the name of one U.S. war.